If there are only two goods in the economy, one whose price rises by 3 percent and one by 5 percent, it is possible that inflation is:

Question

Quizplus · Accepted Answer

Inflation, measured as a weighted average of price changes, can be different from the individual price changes of goods. If the economy consists of only these two goods, the overall inflation rate can be between 3% and 5%, depending on their weights in the consumption basket. Therefore, 4% is a possible inflation rate.

If There Are Only Two Goods in the Economy, One